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PROPERTY, PLANT AND EQUIPMENT

Definitions
Carrying amount is the amount at which an asset is recognized after deducting any accumulated
depreciation and accumulated impairment losses.
Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to
acquire an asset at the time of its acquisition or construction or, where applicable, the amount attributed to
that asset when initially recognized in accordance with the specific requirements of other PFRS.
Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value.
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.
Entity-specific value is the present value of the cash flows an entity expects to arise from the continuing
use of an asset and from its disposal at the end of its useful life or expects to incur when settling a liability.
Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in
an arm’s length transaction.
An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable
amount.
Property, plant and equipment are tangible items that:
(a) Are held for use in the production or supply of goods or services, for rental to others, or for
administrative purposes; and
(b) Are expected to be used during more than one period.
Recoverable amount is the higher of an asset’s net selling price and its value in use.
The residual value of an asset is the estimated amount that an entity would currently obtain from disposal
of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the
condition expected at the end of its useful life.
Useful life is:
(a) The period over which an asset is expected to be available for use by an entity; or
(b) The number of production or similar units expected to be obtained from the asset by an entity.
Recognition
Items of property, plant, and equipment should be recognized as assets when it is probable that:
 The future economic benefits associated with the asset will flow to the enterprise; and
 The cost of the asset can be measured reliably.

Measurement at Recognition

An item of property, plant and equipment that qualifies for recognition, as an asset shall be
measured at its cost.

Elements of Cost
The cost of an item of property, plant and equipment comprises:
(a) Its purchase price, including import duties and non-refundable purchase taxes, after deducting
trade discounts and rebates.
(b) Any costs directly attributable to bringing the asset to the location and condition necessary for it to
be capable of operating in the manner intended by management.
(c) The initial estimate of the costs of dismantling and removing the item and restoring the site on
which it is located, the obligation for which an entity incurs either when the item is acquired or as a
consequence of having used the item during a particular period for purposes other than to produce
inventories during that period.
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Examples of directly attributable costs are:

(a) Costs of employee benefits (as defined in PAS 19 Employee Benefits) arising directly from the
construction or acquisition of the item of property, plant and equipment;
(b) Costs of site preparation;
(c) Initial delivery and handling costs;
(d) Installation and assembly costs;
(e) Costs of testing whether the asset is functioning properly, after deducting the net proceeds from
selling any items produced while bringing the asset to that location and condition (such as samples
produced when testing equipment); and
(f) Professional fees.
Examples of costs that are not costs of an item of property, plant and equipment are:
(a) Costs of opening a new facility;
(b) Costs of introducing a new product or service (including costs of advertising and promotional
activities);
(c) Costs of conducting business in a new location or with a new class of customer (including costs of
staff training); and
(d) Administration and other general overhead costs.
Recognition of costs in the carrying amount of an item of property, plant and equipment ceases when the
item is in the location and condition necessary for it to be capable of operating in the manner intended
by management. Therefore, costs incurred in using or redeploying an item are not included in the carrying
amount of that item. For example, the following costs are not included in the carrying amount of an item of
property, plant and equipment:
(a) Costs incurred while an item capable of operating in the manner intended by management has yet to
be brought into use or is operated at less than full capacity;
(b) Initial operating losses, such as those incurred while demand for the item’s output builds up; and
(c) Costs of relocating or reorganizing part or all of an entity’s operations.
Measurement of Cost
The cost of an item of property, plant and equipment is the cash price equivalent at the recognition date. If
payment is deferred beyond normal credit terms, the difference between the cash price equivalent and the
total payment is recognized as interest over the period of credit unless such interest is recognized in the
carrying amount of the item in accordance with the allowed alternative treatment in PAS 23.
One or more items of property, plant and equipment may be acquired in exchange for a non-monetary asset
or assets, or a combination of monetary and non-monetary assets. The following discussion refers simply
to an exchange of one non-monetary asset for another, but it also applies to all exchanges described in the
preceding sentence. The cost of such an item of property, plant and equipment is measured at fair value
unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the
asset received nor the asset given up is reliably measurable. The acquired item is measured in this
way even if an entity cannot immediately derecognize the asset given up. If the acquired item is not
measured at fair value, its cost is measured at the carrying amount of the asset given up.
Measurement Subsequent to Initial Recognition
PAS 16 permits two accounting models:
 Cost Model. The asset is carried at cost less accumulated depreciation and impairment.
 Revaluation Model. The asset is carried at a revalued amount, being its fair value at the date of
revaluation less subsequent depreciation, provided that fair value can be measured reliably

The Revaluation Model

a. After recognition as an asset, an item of property, plant and equipment whose fair value can be
measured reliably shall be carried at a revalued amount, being its fair value at the date of the
revaluation less any subsequent accumulated depreciation and subsequent accumulated
impairment losses. Revaluations shall be made with sufficient regularity to ensure that the carrying
amount does not differ materially from that which would be determined using fair value at the
balance sheet date.
b. When an item of property, plant and equipment is revalued, any accumulated depreciation at the
date of the revaluation is treated in one of the following ways:
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(a) Restated proportionately with the change in the gross carrying amount of the asset so that the
carrying amount of the asset after revaluation equals its revalued amount. This method is often
used when an asset is revalued by means of applying an index to its depreciated replacement
cost.
(b) Eliminated against the gross carrying amount of the asset and the net amount restated to the
revalued amount of the asset. This method is often used for buildings.

c. If an item is revalued, the entire class of assets to which that asset belongs should be revalued.
This is to avoid a mixture of costs and revalued amounts with in a class of property, plant and
equipments.

d. If a revaluation results in an increase in value, it should be credited to equity under the heading
"revaluation surplus" unless it represents the reversal of a revaluation decrease of the same asset
previously recognized as an expense, in which case it should be recognized as income.

e. The revaluation surplus included in equity in respect of an item of property, plant and equipment
may be transferred directly to retained earnings when the asset is derecognized. This may
involve transferring the whole of the surplus when the asset is retired or disposed of. However,
some of the surplus may be transferred as the asset is used by an entity. In such a case, the
amount of the surplus transferred would be the difference between depreciation based on the
revalued carrying amount of the asset and depreciation based on the asset’s original cost.
Transfers from revaluation surplus to retained earnings are not made through profit or loss.

f. If an asset’s carrying amount is decreased as a result of a revaluation, the decrease shall be

recognized in profit or loss. However, the decrease shall be debited directly to equity under the
heading of revaluation surplus to the extent of any credit balance existing in the revaluation
surplus in respect of that asset.

Depreciation (Cost and Revaluation Models)

For all depreciable assets:

a. Each part of an item of property, plant and equipment with a cost that is significant in relation to the
total cost of the item shall be depreciated separately.

b. The depreciation charge for each period shall be recognized in profit or loss unless it is included in
the carrying amount of another asset.

Depreciable Amount and Depreciation Period

a. The depreciable amount of an asset shall be allocated on a systematic basis over its useful life.

b. The residual value and the useful life of an asset shall be reviewed at least at each financial year-
end and, if expectations differ from previous estimates, the change(s) shall be accounted for as a
change in an accounting estimate in accordance with PAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors.

c. Depreciation is recognized even if the fair value of the asset exceeds its carrying amount, as long
as the asset’s residual value does not exceed its carrying amount. Repair and maintenance of an
asset do not negate the need to depreciate it.

d. The depreciable amount of an asset is determined after deducting its residual value. In practice,
the residual value of an asset is often insignificant and therefore immaterial in the calculation of the
depreciable amount.

e. The residual value of an asset may increase to an amount equal to or greater than the asset’s
carrying amount. If it does, the asset’s depreciation charge is zero unless and until its residual
value subsequently decreases to an amount below the asset’s carrying amount.
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f. Depreciation of an asset begins when it is available for use, ie when it is in the location and
condition necessary for it to be capable of operating in the manner intended by management.
Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale
(or included in a disposal group that is classified as held for sale) in accordance with PFRS 5 and
the date that the asset is derecognized. Therefore, depreciation does not cease when the asset
becomes idle or is retired from active use unless the asset is fully depreciated. However, under
usage methods of depreciation the depreciation charge can be zero while there is no production.

Depreciation Method

a. The depreciation method used shall reflect the pattern in which the asset’s future economic
benefits are expected to be consumed by the entity.

b. The depreciation method applied to an asset shall be reviewed at least at each financial year-end
and, if there has been a significant change in the expected pattern of consumption of the future
economic benefits embodied in the asset, the method shall be changed to reflect the changed
pattern. Such a change shall be accounted for as a change in an accounting estimate in
accordance with PAS 8.

c. A variety of depreciation methods can be used to allocate the depreciable amount of an asset on a
systematic basis over its useful life. These methods include the straight-line method, the
diminishing balance method and the units of production method.

Derecognition
The carrying amount of an item of property, plant and equipment shall be derecognized:
(a) On disposal; or
(b) When no future economic benefits are expected from its use or disposal.

The gain or loss arising from the derecognizing of an item of property, plant and equipment shall be
included in profit or loss when the item is derecognized Gains shall not be classified as revenue.

The disposal of an item of property, plant and equipment may occur in a variety of ways (ex. by sale, by
entering into a finance lease or by donation). In determining the date of disposal of an item, an entity
applies the criteria in PAS 18 Revenue for recognizing revenue from the sale of goods. PAS 17 applies to
disposal by a sale and leaseback.

If, under the recognition principle in paragraph 7, an entity recognizes in the carrying amount of an item of
property, plant and equipment the cost of a replacement for part of the item, then it derecognizes the
carrying amount of the replaced part regardless of whether the replaced part had been depreciated
separately. If it is not practicable for an entity to determine the carrying amount of the replaced part, it may
use the cost of the replacement as an indication of what the cost of the replaced part was at the time it was
acquired or constructed.

The gain or loss arising from the derecognition of an item of property, plant and equipment shall be
determined as the difference between the net disposal proceeds, if any, and the carrying amount of
the item.

The consideration receivable on disposal of an item of property, plant and equipment is recognized initially
at its fair value. If payment for the item is deferred, the consideration received is recognized initially at the
cash price equivalent. The difference between the nominal amount of the consideration and the cash price
equivalent is recognized as interest revenue in accordance with PAS 18 reflecting the effective yield on the
receivable.
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Disclosure

For each class of property, plant, and equipment, disclose:

 Basis for measuring carrying amount;

 Depreciation method(s) used;
 Useful lives or depreciation rates;
 Gross carrying amount and accumulated depreciation and impairment losses;
 Reconciliation of the carrying amount at the beginning and the end of the period, showing:

o Additions;
o Disposals;
o Acquisitions through business combinations;
o Revaluation increases;
o Impairment losses;
o Reversals of impairment losses;
o Depreciation;
o Net foreign exchange differences on translation;
o Other movements.

Also disclose:

 Restrictions on title;
 Expenditures to construct property, plant, and equipment during the period;
 Commitments to acquire property, plant, and equipment.
 Compensation from third parties for items of property, plant, and equipment that were impaired, lost
or given up that is included in profit or loss.

If property, plant, and equipment is stated at revalued amounts, certain additional disclosures are required:
the effective date of the revaluation:

 Whether an independent valuer was involved;

 The methods and significant assumptions used in estimating fair values;
 The extent to which fair values were determined directly by reference to observable prices in an
active market or recent market transactions on arm's length terms or were estimated using other
valuation techniques;
 The carrying amount that would have been recognized had the assets been carried under the cost
model;
 The revaluation surplus, including changes during the period and distribution restrictions.

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